Appeals court says poultry firm’s cutbacks weren’t anti-competitive

Published:September 3, 2013 2:25PM

A ruling by the 5th U.S. Circuit Court of Appeals has reversed a $25 million judgment that chicken farmers previously won from a major poultry packer. The opinion pertains to competition in the meat industry.

Analysis

By Mateusz Perkowski

Capital Press

A meat packer’s attempt to increase poultry prices by reducing output wasn’t an anti-competitive violation of the law, according to a federal appeals court.

The 5th U.S. Circuit Court of Appeals has reversed a $25 million judgment that chicken farmers had previously won from the Pilgrim’s Pride Corp.

In 2011, a U.S. magistrate judge found that the company violated the Packers and Stockyards Act — which governs the meat industry — by idling packing plants to reduce poultry supplies.

By decreasing its production and refusing to sell facilities to competitors, the company engaged in price manipulation, the ruling said.

The $25 million judgment was meant to compensate 90 farmers who supplied a Pilgrim’s Pride poultry plant in Arkansas.

The 5th Circuit has overturned that ruling, finding that its “conduct was merely the legitimate response of a rational market participant to changes in a dynamic market.”

Pilgrim’s Pride was facing severe financial pressure in 2008 when the facilities were idled, so it made sense to stop flooding the market with chicken, the ruling said.

“If a firm inadvertently over-produces a good and drives down prices, it does not break the law by cutting production so that prices recover,” the 5th Circuit said.

The Packers and Stockyards Act is intended to protect competition in the meat industry, not to prevent prices from increasing, the opinion said.

In this case, Pilgrim’s Pride was acting on its own without trying to suppress its rivalries with other packers, the ruling said.

“While we agree that a goal of competition is lower price levels, a unilateral attempt to raise prices, without more, is not inherently illicit or anti-competitive,” the 5th Circuit said.

The appellate ruling doesn’t address key facts that figured prominently in the lower court’s decision: the large market share controlled by Pilgrim’s Pride and its refusal to sell facilities, said Peter Carstensen, a professor specializing in agricultural antitrust law at the University of Wisconsin.

The 5th Circuit’s opinion has the effect of strengthening the advantage that meat packers have over their suppliers in disputes over the Packers and Stockyards Act, he said.

“You’ve got an awful lot of force for limiting the scope of the P&SA,” Carstensen said.

Appellate courts have largely held plaintiffs to a very high standard in proving that a packer has violated the law, he said.

To violate the law’s provisions against unfair and deceptive conduct, the packer must be found to injure overall competition in the industry, according to legal precedents.

In the most recent case, the 5th Circuit takes a narrow view of what is considered anti-competitive, Carstensen said. “This makes it very hard for plaintiffs in these cases.”

Appellate courts have likely been conservative in their interpretation of the Packers and Stockyards Act because they fear disrupting the established “market process” between buyers and sellers, he said.

It is possible that the farmers will appeal the ruling and the U.S. Supreme Court could take a different approach, but this outcome isn’t likely, Carstensen said.

Similar cases have been appealed in the past and the Supreme Court has refused to review them, he said.

An attempt by USDA to strengthen regulations under the Packers and Stockyards Act was rebuffed by Congress in 2011, so it’s difficult to imagine changes on this front as well, Carstensen said.